Next week the Federal Reserve is set to make its final monetary policy announcement of the year and 100% of economists surveyed by Bloomberg predict that the Fed will raise rates. While 100% demonstrates a high level of conviction among this group of market observers, I am much less convinced.
4 reasons why I believe the Fed will not raise rates next week:
- High yield bond spreads have begun blowing out and a Fed rate-hiking cycle could serve to only further destabilize this shaky, yet important, segment of the bond market
- Regardless of the Fed’s consumer price inflation forecasts the fact is that we are in the midst of a strong deflationary trend that a rate-hiking cycle and more US dollar strength will only exacerbate
- Commodities are in a tailspin and further downside, which would be likely in the event of a more hawkish Fed monetary policy stance, could be a catalyst to trigger an implosion of several sectors of the economy that are already under pressure:
- The US Dollar Index has sold off aggressively in the last week, which is not indicative of an imminent Fed rate hike. Moreover, the Fed is already in a catch-22 situation with the prospect of rate hikes triggering a further rise in the US dollar which would add additional pressure to areas of the economy that are already feeling squeezed:
